InSight

Exit and Growth Strategies for Middle Market Businesses

Private Equity Deal Flow

By Kim Levin | Oct 12, 2012

Middle Market PulsePrivate Equity is a major source of funding for middle market business acquisitions and recapitalizations. We take notice when PE statistics are released, as they are a good measure of the private capital markets. Private Equity deal data for the first half of 2012 is in and the numbers aren’t pretty for the private equity firms, but the underlying message is good for private company owners.

Despite beginning the year on an optimistic note, PE deal volume is down 17% in the second quarter compared to Q1 2012 and when compared to last year, the number of deal closings are down a disappointing 39%. Private equity buyers aren’t happy about this. Their job, after all, is to buy or recapitalize companies now for a future return a few years out.

Private equity firms have $405 billion in idle cash that they need to invest. That’s more than they have invested over the last six quarters combined. We are seeing this demand for deals by increasing contact from private equity firms contacting CFA offices asking about our new clients. We interpret the current market as a “sellers’ market” where we get multiple bidders on companies that we are selling.

Q2 also saw the continued use of add-on investment strategies by PE firms. Firms are looking to make add-on deals because there is a lack of new investment opportunities. Nearly half of all PE deal flow in the first six months of 2012 has been in the add-on space and we see this trend continuing to play an integral role through year’s end.

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